Private Lending

A private mortgage is a loan secured against real property and funded outside ordinary prime institutional lending channels. The lender may be an individual, a corporation, a mortgage investment corporation (MIC), a mortgage fund or another private capital source. The mortgage is still a legal charge against the property; “private” does not make the contract informal or optional.

Private mortgages vary far more than standard bank products. Rate, lender fee, term, payment structure, prepayment rights, renewal provisions, legal costs, property requirements and enforcement terms can differ substantially. The commitment and mortgage documents therefore matter at least as much as the headline rate.

FSRA describes alternative/private mortgages as typically short-term financing, often used for one or two years while a borrower works toward a lower-cost solution. That short term is not a minor product feature: it creates a maturity date at which the entire remaining balance still has to be dealt with.

A private mortgage is therefore strongest when time itself enables a specific change—credit cleanup, completion of construction, return to employment, sale of an asset, completion of tax filings, expiry of a costly first-mortgage term or another identifiable event. If nothing material will be different at maturity, the mortgage may only be postponing the same problem at a higher cost.

Private lenders often place more weight on the property and available equity than a bank would, but responsible private lending is not simply “lend if there is equity.” Three dimensions interact: the property must provide acceptable security, the borrower must be able to meet the contractual obligations, and there must be a realistic way to repay, refinance or otherwise resolve the mortgage by maturity.

A strong property cannot make an unaffordable payment safe. Strong income cannot fix a property that the lender cannot value or sell. And a short-term approval is not a complete solution when the borrower has no credible exit.

Private financing may be considered after a bank or alternative lender cannot meet the borrower’s timing, documentation, credit, property or transaction needs. Examples include an urgent purchase closing, temporary income-documentation gap, mortgage arrears, tax debt, construction completion, an appraisal or property issue that needs time to cure, or a short period before an identifiable sale or refinance event.

The fact that private money is available does not mean it is the best answer. A lower-cost B-lender mortgage, HELOC, second-position institutional product, repayment arrangement, sale or simply waiting until an existing mortgage matures can sometimes preserve more equity and create less risk.

The funding source can change the borrower experience. An individual lender may make a highly case-specific decision but may also have personal liquidity needs that make renewal less predictable. A MIC pools investor capital and may operate with more standardized property, LTV and renewal policies. A private corporation or fund can fall anywhere between those models.

The useful question is not which category is “better.” It is whether the actual lender’s term, administration, property appetite, renewal policy and exit expectations fit the borrower’s situation.

A private first mortgage is registered ahead of later mortgages and ordinarily has the first claim among mortgages on sale proceeds, subject to law and other priority claims. A private second mortgage sits behind the first lender. Because the second lender can be paid only after prior claims are addressed, second-position pricing and maximum combined leverage are often more conservative.

For the borrower, a second mortgage can still be strategically useful when it avoids breaking a favourable first mortgage. The correct comparison is not “first rate versus second rate”; it is the total cost of replacing the first mortgage versus preserving it and adding a second-position loan.

Many private mortgages use interest-only payments, which can reduce monthly cash requirements because scheduled payments do not repay principal. Some transactions use a prepaid interest reserve or capitalize certain costs into the mortgage. Those structures can help with temporary cash-flow timing, but they also mean the borrower may reach maturity owing substantially the same principal—or more if fees and interest were added to the debt.

A low monthly payment should therefore never be confused with a low-cost mortgage. The borrower should know the gross mortgage amount, cash actually received, required monthly payment, total expected term cost and projected payout at maturity as separate numbers.

Private mortgage economics include more than the contract interest rate. Depending on the transaction, costs can include lender fees, brokerage fees, borrower legal fees, lender legal costs charged under the commitment, appraisal expenses, title or registration costs, discharge costs, interest reserves and renewal or extension charges.

If fees are deducted from the advance, the borrower receives less cash than the registered or funded mortgage amount suggests. If they are added to the mortgage instead, the borrower may pay interest on those financed costs. The Private Mortgage Cost Calculator is more useful than comparing rates alone because it separates gross debt, deductions, cash received and maturity balance.

At the end of the private mortgage term, the remaining balance normally has to be repaid or otherwise resolved under the contract. The existing lender may agree to a renewal or extension, but the borrower should not assume that new capital or another term will be offered.

FSRA treats a negotiated renewal as a new transaction for regulatory purposes and has specifically warned that repeated renewal fees and high rates can consume home equity. A borrower who waits until the final weeks of a one-year term can discover that the refinance, appraisal, sale or legal work needed for the exit cannot be completed in time.

A private mortgage exit strategy is the plan for repaying or replacing the short-term financing. “I will refinance next year” is only a destination, not a plan. A useful exit identifies what prevents lower-cost financing today, what will be different by maturity, what evidence will prove the change and what happens if the primary plan fails.

Examples include completing 12 months of stable employment, reducing specified debts, filing and documenting business income, finishing permitted construction, selling the property or another asset, or reaching the maturity of an existing first mortgage so the complete debt structure can be refinanced. Future property appreciation by itself is not a reliable exit.

A private mortgage may be a poor fit when the borrower cannot carry the required payment, the proceeds merely fund ongoing living deficits, the exit depends on speculation, repeated renewals are already consuming equity, or a lower-cost durable solution is available. It can also be inappropriate where the mortgage preserves ownership for only a few months while making an eventual sale materially worse.

The decision should compare the mortgage with realistic alternatives and with the cost of doing nothing. Sometimes expensive short-term capital protects a larger financial position. In other cases, the safest decision is to avoid adding another mortgage.

Before signing, a borrower should be able to explain—in ordinary language—why private financing is being used, how much cash will actually be received, what must be paid each month, what the total known costs are, what amount is expected to remain owing at maturity and what specific event is intended to repay or replace the loan.

The borrower should also understand the lender’s identity, the relationship between the lender and brokerage, all disclosed fees, prepayment and default terms, renewal assumptions and who administers the mortgage. In Ontario, a mortgage professional arranging private financing must have the appropriate licence; FSRA’s consumer information explains that Level 2 agents and mortgage brokers may arrange mortgages involving private lenders.

HopeWell’s funded-case library shows that the strongest private structures tend to have a visible transition event. A rush private first mortgage can make sense when a builder closing cannot wait but credit defects can be corrected. A temporary second mortgage can preserve a valuable first mortgage when the borrower expects a documented return to employment. Construction financing can be rational when completion itself creates a property that becomes financeable by an institutional lender.

The opposite pattern matters just as much: where nothing changes except the calendar, repeated private renewals can increase debt and reduce the borrower’s remaining choices. Past funded cases demonstrate possible structures, not a promise that another borrower or property will qualify.

Private mortgages are legally binding secured contracts. If a borrower receives a demand letter, notice of sale, litigation document or other enforcement correspondence, the legal consequences depend on the mortgage, title, defaults and Ontario law. A financing review does not replace legal advice.

Where the correct financing outcome cannot be determined reliably from the available facts—or where the issue turns on lender discretion, contract interpretation, enforcement, tax or another professional matter—the appropriate next step is a licensed mortgage or legal review rather than a guessed answer.